After Finance Minister Kwasi Kwarteng presented his “mini-budget” last month, fear and uncertainty among Brits looking to buy a property surged. Mortgage products have been removed, payments are rising, and lenders are bailing out of agreed-upon deals.
Kwarteng claims his budget would increase growth even though the cost-of-living crisis in the U.K. is still present. According to critics, it will primarily benefit the wealthy and increase inequality in the U.K. His controversial plan calls for dramatic tax cuts and corporate laws and regulations loosening.
One aspect of the mini-budget was favourable for anyone looking to buy a house: Stamp duty, a levy many buyers must pay when purchasing real estate, was reduced.
Stamp duty cuts
Only those whose properties are above a certain threshold will pay stamp duty. Before the mini-budget went into effect, the bar for first-time buyers was already higher than the average U.K. property price. Thus, the changes don’t significantly affect many first-time buyers.
Even though the changes in stamp duty are positive for those close to buying their property, the increases in other costs, such as inflation and interest rates, could make it harder for people to save up for a purchase. It is important to note that while this may be a win for some people close to buying their home, they should still save more money on stamp duty to buy sooner.
What about mortgage rates?
The housing and mortgage sectors have been particularly impacted, with lenders cancelling or raising the price on hundreds of mortgage deals due to rising sovereign bond yields and Bank of England rate expectations, as the base rate of the BOE is used to set the price of all loans and mortgages in Britain, this increased expenses for borrowers.
The average rate on a 2-year fixed mortgage last week exceeded 6%, according to statistics from Moneyfacts, up from 2.25% just a year ago. With rising lender costs, an unclear economic outlook, considering service levels, and anticipated future rate increases, the average rate in the coming year maybe 7%.
How will the stamp duty cuts impact the housing market?
Rising mortgage rates are the main factor influencing the housing market’s outlook. Even with reduced stamp duty, the measure could not be sufficient to counter the growing cost of mortgages for many prospective purchasers.
The likelihood that the stamp duty adjustments will help housing prices depends mainly on how much rising mortgage rates will counter this assistance. The changes won’t resolve affordability issues; on the contrary, they’ll get worse. Instead of just stimulating an already hot market, a longer-term strategy is required to drive housing market reform and expand supply in both the ownership and rental sectors.